Oil hovers above $88 in Asia after US crude supplies drop

SINGAPORE—Oil prices hovered above $88 a barrel Wednesday in Asia after a report showed US crude supplies unexpectedly fell last week, suggesting demand could be improving.

Benchmark crude for November delivery was down 22 cents at $88.12 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose $1.96 to settle at $88.34 in New York on Tuesday.

Brent crude for December delivery was up 40 cents at $111.55 a barrel on the ICE Futures Exchange in London.

The American Petroleum Institute said late Tuesday that crude inventories fell 3.1 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 1.8 million barrels.

Inventories of gasoline dropped 1.6 million barrels last week while distillates slid 2.2 million barrels, the API said.

The Energy Department’s Energy Information Administration reports its weekly supply data later Wednesday.

Crude has jumped 17 percent from $75 two weeks ago as investor optimism was bolstered by signs European leaders will soon announce a plan to contain the region’s sovereign debt crisis.

Oil traders have also been encouraged by gains in global stock markets after a period of sustained losses. The Dow Jones industrial average rose 1.6 percent Tuesday and most Asian stock markets advanced Wednesday.

However, some analysts are forecasting commodities such as oil will drop next year amid weak global economic growth and a stronger US dollar, which makes crude more expensive for investors with other currencies.

“We would still expect fresh falls in 2012 as global economic activity remains sluggish, risk appetite stays fragile and the dollar recovers more ground,” Capital Economics said in a report.

In other Nymex trading, heating oil fell 1.1 cents to $3.02 per gallon and gasoline futures dropped 1.3 cents to $2.70 per gallon. Natural gas added 0.2 cent to $3.56 per 1,000 cubic feet.